The Dangers of Pulling Out of a HDB BTO Flat Purchase

Have you thought of the risks involved from pulling out a BTO flat purchase? If not, read this post extracted from MoneySmart’s Blog to have a clearer picture of the losses you can incur from backing out.

It was not so long ago when getting allocated a HDB Built-to-Order (“BTO”) flat was as difficult as striking the lottery. Hence, it was not uncommon for dating couples to submit an application for a new flat just for fun, since it was so difficult to get one anyway. And the cost of doing so was pretty negligible, just $10. Stories of friends who were serious about settling down but vexed with failing to get a BTO after 6-7 tries (over 1-2+ years) were not uncommon. If only one could trade options for BTO… you can imagine how hot the market would be.

Fast forward to today, things have improved and the backlog of first-time BTO applicants has largely been cleared. Getting allocated a BTO is no longer so difficult. However, for couples who apply under the Fiance/Fiancee scheme, keeping the BTO or the relationship for that matter hasn’t gotten easier. Statistics show that 22% of those who apply for BTOs subsequently give it up within the next 4 years. 1 in 5 couples is quite a high statistic.Sometimes, life happens. Despite the best intentions, relationships don’t work out. And due to the peculiarity of our system, many couples do ballot for flats before they get married, some even before the proposal. BTOs take a few years to build, during which time most of these couples do register for their marriages and collect the keys to their BTOs. However, what happens to couples who break up?There are a few scenarios, depending on when the decision to give up the flat happens.Scenario 1: You pull out of purchasing your BTO after selecting a flat unitAt this stage, you have gone for your HDB appointment to select a particular unit. The HDB officer briefs you on the procedures and financing options, including applying for a HDB loan. You pay a $2,000 option fee for a 4-5 room flat or $1,000 for a 3-room flat.Basically, what you have now is the option to a brand new BTO. Substantial consideration has probably gone into choosing your ideal block, floor, facing and unit number for the estate you had initially balloted for. Depending on your queue number, you may have had choice pickings if you are at the front of the queue, one of many average units if you are somewhere in the middle, or if your queue number exceeds the number of units available, you hoped and prayed that people before you would give up on the selection so you would get a unit. Or you may pass on this round and ballot again in the next new launch of BTOs in order to select a choice unit.It will probably be up to 4 months before your next appointment to sign the Agreement for Lease with HDB.What happens if you pull out now?

You forfeit your $1,000 or 2,000 option fee, and

You are barred for ONE year from the date of cancellation of your BTO before you can apply for another BTO, including DBSS, EC; or a resale flat with CPF housing grant or which has been announced for SERS.

So you lose some money, and incur a one-year opportunity cost before you are able to select a HDB flat again.Scenario 2: You pull out of purchasing your BTO after signing the Agreement for Lease before collection of keysNow, this starts to get serious.If you pull out of your BTO flat purchase after signing the Agreement for Lease, you stand to lose:

5% of the flat purchase price,

Any expended legal and stamp fees, and

You are barred for ONE year from the date of cancellation of your BTO before you can apply for another BTO, including DBSS, EC; or a resale flat with CPF housing grant or which has been announced for SERS.

Not to mention, if you have signed on a bank’s letter of offer, you may be subject to cancellation penalties.

Pulling out of a HDB BTO purchase can potentially burn $10k to $30k of your hard-earned money.Not to mention potential penalties from cancelling any mortgage taken from your bank. Cancellation fees can be a % of your mortgage amount. Assuming a 80% loan, and a 1.5% cancellation fee, this can incur another $2.4k to $4.8k monetary loss for you.Not a pretty picture. For DBSS or EC, forfeiting a unit would incur even more severe losses of 20% of your purchase price, instead of 5% for HDB BTOs. Of course it would be better to be certain of your relationship before applying for and signing the Agreement for Lease. However, such things are easier said than done. One can only take comfort in the fact that money lost can be earned again. Relationships lost can be built again. Also, if you were to half the losses among both parties, it could make it less painful.